RBI has scope to cut rates, feels IMF

But it tells advanced countries, especially the US Federal Reserve not to raise interest rates

GN Staff | September 4, 2015


#Imf   #rbi   #international monetary front   #reserve bank of india   #inflation  

While asking the central banks of advanced economies to "maintain supportive policies" and refrain from raising interest rates too quickly, the International Monetary Front (IMF) has said that there is room for the Reserve Bank of India to cut rates.

However, it said "while the faster-than-expected fall in inflation has created space for considering modest cuts in the nominal policy rate, medium-term inflationary pressures and upside risks to inflation remain."

The caution and advise are part of IMF report on Global Prospects and Policy Challenges being released ahead of G-20 meeting in Ankara, Turkey.

Earlier, IMF had been consistently demanding tight monetary stance in case of India, so in a way this is its partial shift of the policy advice. But, it balances the advise by warning against upside risks to inflation.

Though it did not give details of these risks, those may come from damage to rabi crops if monsoon does not progress well in September.

The RBI is widely expected to cut rates in its policy review later this month, or even earlier.

IMF said near-term growth prospects remain favourable and external vulnerabilities have decreased, but here also it cautioned against some macroeconomic imbalances.

It talked of balance sheet strains in the corporate and banking sectors. To tackle this, it prescribed that financial sector regulation be enhanced, provisioning increased, and debt recovery strengthened.

It said growth in India, one of the world’s largest commodity importers, will benefit from recent policy reforms, a consequent pickup in investment, and lower commodity prices.

IMF's observation comes at a time when economic expansion in India slowed down to 7% in the first quarter of the current financial year against 7.5% in the previous quarter.

The multi-lateral agency said domestic demand in India is accelerating, underpinned by the collapsing commodity-import prices. Despite lower growth in India, it remains one of the fastest growing large economies along with China. This is when IMF said global growth remains moderate, reflecting a further slowdown in emerging economies and a weak recovery in advanced economies.

Also, it warned that its earlier projections for economic growth of emerging markets and developing economies would face downward risks from rising financial market volatility, declining commodity prices, weaker capital inflows, and depreciating emerging market currencies.

Meanwhile, the IMF warned that risks to the global economy are mounting amid slowing growth in China, tanking emerging economies and unease over international financial markets.

In view of these challenges, the IMF urged the central banks of advanced economies to refrain from raising interest rates too quickly.

The IMF said the performance of many economies is again falling short of expectations.

It called for action to boost flagging growth rates and raise the medium-term performance of the world's largest economies from the current "moderate" level. Productivity growth in advanced economies has also been persistently weak, the fund noted.

The fund called on the United States Federal Reserve to "remain data-dependent" and not rush to raise interest rates since there has been "little evidence of meaningful wage and price pressures so far".

Amid the turmoil, Asian economies appear to be holding up and are doing "pretty well", IMF chief Christine Lagarde said on Wednesday while in Jakarta on a two-day visit.

"What has been demonstrated in the last few weeks is how much Asia is at the core of the global economy, and how much disruptions occurring in one market in Asia can actually spill over to the rest of the world," she said.

Despite external pressures and the slower pace of expansion in Asia, Ms Lagarde said "this whole region, in the world, is doing pretty well", and would continue to be a key source of global growth.

Comments

 

Other News

Soumya Swaminathan to head M S Swaminathan Research Foundation

Former World Health Organisation (WHO) chief scientist Soumya Swaminathan takes charge as chairperson of M S Swaminathan Research Foundation (MSSRF) from February 1.   Founded by her father, the legendary agricultural scientist M S Swaminathan, MSSRF was set up to accelerate the use of m

m-Governance: Key to Digital India

The digital revolution is being led by India. Digital governance is a key component of the government's ambition to transform India into a society where everyone has access to the internet. It includes both M-governance and E-governance, which are major methods for the delivery of services via mobile devic

A sacred offering of the beauty of ‘Saundarya Lahari’ – in English

Saundarya Lahari: Wave of Beauty Translated from the Sanskrit by Mani Rao HarperCollins, 218 pages, Rs 399 ‘Saundarya Lahari’, usually ascribed to Adi Shankaracharya, has a unique status among the religious-spiritual works of Hinduism.

The Boy Who Became the Mahatma

This year, as the nation commemorates the 75th death anniversary of Mahatma Gandhi on January 30, Rajesh Talwar, a prolific author who is also a legal advisor to the UN, is all set to release a play for children on non-violence chronicling the life of Mahatma Gandhi, ‘The Boy Who Became the Mahat

What makes Sundargarh the cradle of hockey in India

Neha Lakra, 20, doesn’t forget to practise hockey, at least for four hours, every day. Whether at home or at the Panposh sports hostel in Rourkela where she is training under the guidance of coaches, her routine doesn’t change. “I can’t sleep unless I have worked on the ground,&rdqu

Where the true sadhana of Vedanta is to be found

Somewhere Among the Stars: Reflections of a Mystic By Adi Varuni Kali/BluOne Ink, 282 pages, Rs 395 Decades ago, when an unknown N

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now



Archives

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter